LVT Key to Curbing Vietnam Real Estate Bubble
- From: "Mark M." <markm@xxxxxxxxx>
- Date: Mon, 29 Oct 2007 22:48:54 -0600
Speculation causing real estate market fever
16:32' 24/10/2007 (GMT+7)
http://english.vietnamnet.vn/biz/2007/10/751112/
VietNamNet Bridge – The HCM City real estate sector is now witnessing a ‘virtual fever’, as described by Head of the HCM City Economics Institute Tran Du Lich, meaning that the price fever is not being caused by supply and demand imbalance but by speculation.
As you may see, the real estate market is now witnessing a new fever. Do you think this is because of the shortage of apartments and houses for sale?
Head of the HCM City Economics Institute Tran Du Lich:
No, I don’t think so. The market is now witnessing a virtual fever, and it is because of state management authorities’ shortcomings in using financial tools to regulate the market. It is clear that people are rushing to purchase apartments not to live in them, but to resell to get profit, because they believe that house prices will increase further. In fact, those who have actual demand for accommodation cannot afford houses and apartments with such high price levels.
VNN:
You may have heard that people queued last weekend, scrambling for the right to buy apartments at The Vista in HCM City. The trick played by speculators has pushed the prices up by two times compared to the initial prices. How do we deal with such speculation activities?
Tran Du Lich:
It is necessary to deal with the activities with financial measures. I mean we should use tax as a tool to regulate the market. I have to say that according to the ordinance on land taxation enacted in 1992 and amended in 1994, Vietnam taxes on land, not on house value. The tax rate imposed on the VND1bil house should be different from the rate on the $1mil home.
It is necessary to tax speculators, and the tax scheme must be built up in a way so that speculators understand that house price increases will not offset the tax sums they have to pay. The market will return to its normal track when there are no speculators who buy houses just to re-sell them later to make profit.
A paradox exists: Vietnam has the lowest level of income per capita in the world, but the prices of land and houses are among the highest levels in the world.
VNN:
How has the ‘virtual price fever’ been influencing society and the national economy?
Tran Du Lich:
The speculation has been destroying our industrialisation. Investors cannot get land for their workshop premises because they cannot afford such high prices. Meanwhile, the government does not have enough money to compensate people for taking their land for roads, schools and hospital projects. Several million people do not have accommodation.
Some experts say that the government and National Assembly only need to speed up the compilation of the law on using land to force the prices down. Do you agree with this opinion?
The prices would go down immediately, if two things were done. First, the government announces it will revoke the licences it granted to the projects whose investors are slow in implementation, leaving land idle. This will help prevent ‘project speculation’. Second, the government uses tax as a tool to prevent land and house speculation.
Le Nhung
Mark M.
.
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